Estonia to become a global ICO hub

January 19, 2018 at 5:33 PM

Category: Distributed Ledger Technology

By Richard J. Witismann

Public interest in digital assets has exploded in 2017, driven by technology innovation and diminished trust in governments and central banks after the financial crisis. But largely unregulated cryptocurrency trading has drawn increasing calls for rules to protect investors and safeguard governments from losing tax revenue.

On 13th of November, 2017 The European Securities and Markets Authority (ESMA) followed U.S. Securities and Exchange Commission with initial coin offering (ICO) risk warnings and issued two statements on ICOs.

In the first one, it alerted investors of the high risk of losing all of their invested capital, as “ICOs are very risky and highly speculative investments”. ESMA also remarked that “ICOs are also vulnerable to the risk of fraud or money laundering”.

In the second statement, ESMA addressed the makers behind ICOs and advised them that contrary to popular belief they might not be operating in an unregulated area. ESMA made it clear that it is likely that firms involved in ICOs conduct regulated investment activities, where ICOs qualify as financial instruments. As such, firms conducting such an activity will need to comply with the relevant legislation.

While many countries remain divided on whether or when to develop legal frameworks that would enable securely manage tradable crypto assets, Estonia has passed on November 27th, 2017 a piece of legislation that aims to regulate cryptocurrency trading.

The new wording of the Money Laundering and Terrorist Financing Prevention Act stipulates that providing services of the exchange of virtual currency or custodial wallet services requires an authorization. In order to obtain a cryptocurrency exchange license in Estonia an application must be filed to the Register of Economic Activities. The application must be supported by required documents and information. As a rule, the Financial Intelligence Unit will provide the authorization within 30 days from receiving all necessary documents.

But this is only the beginning.

Estonia aims to become the best option globally for trusted ICOs, which in 2017 have attracted more than $4bn globally.

Cementing its status as one of the world’s most advanced digital nations, Estonia has already established an innovative e-residency scheme for foreign nationals and created entirely paperless bureaucracy based on digital ID system. There are currently more than 27,000 e-residents from 143 countries around the world, who can run businesses in Estonia without even entering the country.

In a bid to become a global hub for ICOs, Estonia is now moving ahead with plans to launch its own crypto token, the estcoin. For the sake of clarity - estcoin is not intended to provide “an alternative to the euro”. What’s being proposed isn’t a coin (like Bitcoin), but a digital token which would not be able to fluctuate in value.

In a blog post published on December 18th, Estonia’s e-Residency program managing director Kaspar Korjus explained that the estcoin will function as a crypto token for the country’s e-Residency program and would be made available to e-Residents in three possible formats:

The community estcoin. A reward for promoting or improving the e-Residency scheme. These could be given to e-Residents who hold regulated ICOs within the e-Residency system.

The identity estcoin. A form of digital signature used to sign smart contracts or access online services. This coin would be linked to one individual’s identity, and therefore would not be exchangeable.

The euro estcoin. This would see the digital token pegged to the euro, and used to carry out instant, free transactions through blockchain technology.

The estcoin, ultimately, is part of a larger plan for establishing Estonia as a global “haven” for ICOs, by using the e-Residency program as an entirely new method for conducting ICOs within the country. ICOs run through the program would be subject to best practices guidelines, giving their investors more confidence and transparency.

Kaspar Korjus:

If successfully done, this could help create a decentralized and trusted peer-to-peer securities trading globally through e-Residency.

There is no timetable for launching estcoin, but it may go on sale in 2018.